# Transaction Costs

Chapter 20 Problem 10 A stock currently sells for %77.50. Call options on the stock have an exercise price of \$75 and sell for \$7.75, and put options have an exercise price of \$75and sell for \$4. These options will expire in three months. The three-month U.S. Treasury bill annualized yield is 5 percent. There are no transaction costs and no restrictions against using the proceeds from the short sale of any security. a. A synthetic Treasury bill can be constructed by investing in a combination of the securities identified. (1) Identify the three transactions needed to construct a synthetic Treasury bill. (2) Calculate the synthetic Treasury bill’s annualized yield. b. An arbitrage strategy can be constructed with 75 actual and 100 synthetic Treasury bills, producting a face amount of \$750,000. (1) State the arbitrage strategy. (2) Calculate the immediate incoming net cash flow. c. Determine the net cash flow of the arbitrage strategy at the six-month expiration date if the stock price at expiration date if the stock price at expiration is \$80. (Ignore any cash flows stemming from the original arbitrage profit.)

Don't use plagiarized sources. Get Your Custom Essay on
Transaction Costs
Just from \$13/Page

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

## Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.